MakerDAO Rejects $100 Million Loan To Cogent Bank –

The MakerDAO community has turned down Cogent bank’s proposal to borrow $100 million from the platform. According to the decentralized lending platform, the protocol’s governance site indicated that 72.88% of the voters rejected the plan on Monday. MakerDAO is a decentralized autonomous platform that manages the lending firm Maker via votes and proposals.

Notably, Maker enables the generation of DAI, the world’s first unbiased currency and leading decentralized stablecoin. It issues the $5 billion stablecoin DAI, backing its value by collateralized digital assets from borrowers. DAI is pegged to the US Dollar, which is essential when crypto financers want to exchange more volatile crypto for a relative stablecoin.

The protocol allows individuals to take out loans in DAI using other cryptocurrencies as collateral. However, these loans are overcollateralized, meaning that one will have more cryptocurrency than the one put in. Over-collateralization protects against crashes of ETH or other coins that back DAI, including wrapped bitcoin(wBTC) and USDP.

Nonetheless, Cogent bank is a state-chartered bank that has operated as a full-service business and personal bank since 2001. The bank, which has over $1 billion in digital assets, proposed borrowing $100 million in DAI stablecoin from Maker. According to the MIP-95 proposal uploaded on Maker’s governance forum, the bank wanted the funds in order to extend loans to its corporate and industrial clients. The Cogent bank was referred to as Pinnacle Bank before its acquisition in 2018. The Federal Deposit Insurance Corporation insures the Florida-based bank.

Previously approved loans by the platform

In August last year, Maker approved a similarly structured loan to Huntingdon Valley Bank. The loan approval represents a fallout from Makers’ aspiration to engage more traditional players in its platform. In a thread of tweets, Maker explained how the existing and new businesses would work.

Today is a defining moment to envision the potential of connecting decentralized finance and real-world finance.

Huntingdon Valley Bank and Maker pioneer the first commercial loan participation between a U.S. Regulated Financial Institution and a decentralized digital currency. pic.twitter.com/wajJYVJwwz

— Maker (@MakerDAO) August 23, 2022

The platform noted that:

HVBank and RWA Master Participation will not have a borrower-lender relationship. The trust will have access to DAI liquidity in exchange for the sale of participation interests in the underlying loans originated by HVBank.

However, in mid-February, Cogent bank proposed participating with $100 million in loans to MakerDAO’s RWA Master Participation Trust. The proposal was part of MakerDAO’s monthly governance cycle, which sought similar terms and conditions applied to Pennyslvania-based Huntingdon Valley Bank (HBV). HBV entered into a collateral integration with the crypto platform, enabling the bank to borrow against its assets using DeFi.

Notably, the DeFi protocol would have gained exposure to the credit market in at least eight categories, including industrial, life insurance, commercial real estate, consumer, and public finance, with loans issued on a fixed rate basis. Among the revenue sources for MakerDAO are fees associated with maintaining the vault, minting DAI, and yields.

MakerDAO voters’ comments

Before the vote conclusion, some MakerDAO voters gave their comments regarding the proposal. The Maker voter London Business School Blockchain noted that ”unlikely prior RWA deals, there is no way to quickly liquidate the loan portfolio should Maker wish to reduce its exposure to the underlying asset.” However, London Business School Blockchain voted in favor of the proposal.

Apart from London Business School Blockchain, ACREinvest also stipulated its comments. It noted that, if the polls fail, they hope Cogent would revisit opportunities with MakerDAO if there’s still a match as the Real World Asset Scope Framework comes online and evolves.

MakerDAO’s focus on decentralization

On the other hand, MakerDAO turned down several proposals that could bring more centralization to the protocol’s governance structure. In July last year, the platform held a meeting to consider proposals that could have altered the leadership of the protocol’s decentralized autonomous organization (DAO) into a structure similar to traditional corporations with a board of directors. However, the overwhelming voting indicated that the MakerDAO community is focused on decentralization.

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